China and the World

It’s only natural

It’s gas, not Marx, shaping Sino-Russian relations

Fill her up, Vladimir

Sino-Russian relations have had their ups and downs. One Beijing academic traces the beginnings of China’s ‘era of humiliations’ to the Treaty of Nerchinsk, signed with Russia in 1689.

Relations improved in 1950, when Mao Zedong signed a 30 year Treaty of Friendship and Alliance with Stalin.

But by 1969, they were at a low ebb again, with the two Communist states on the verge of war.

Things got so bad that when Alexei Kosygin, the Soviet prime minister of the time, picked up the hotline to Beijing and asked to speak to Mao, the Chinese operator denounced him as a “scoundrel revisionist” and slammed the phone down.

Put in this context, the recent Beijing visit of Russia’s current prime minister, Vladimir Putin, was much more cordial.

But it is energy concerns rather than ideological ones that now make for a mutually beneficial relationship.

During the October summit, the two countries signed deals worth $3.5 billion.

But the main talking point was a provisional approval for the export of a huge quantity of Russian gas to China.

If the deal is signed off, Gazprom, the Russian gas giant, could begin supply by 2014 and eventually provide 70 billion cubic metres a year. That is an equivalent to nearly 90% of China’s total consumption last year.

“The economies of China and Russia are mutually complementary and in a critical phase in their development. As long as they plan from a long-term perspective, display their strengths and cooperate closely, they will overcome the current difficulties and realise a win-win situation,” announced state news agency, Xinhua.

There are clear benefits in closer bilateral ties. China is soon to become the world’s largest energy consumer. Russia has resources to sell and is anxious to court Chinese investment. In truth, Putin’s Russia has a lot at stake. The World Bank projects that Russia’s economy will shrink by 7.9% this year.

The Chinese are also shopping around for their future energy supplies, with several big hydrocarbon deals in Kazakhstan. In December, Turkmenistan is scheduled to begin gas shipments too. Earlier in the year China National Petroleum Corp (CNPC) also purchased a block of Iran-owned South Pars, the world’s largest gas field.

Experts say that the steady stream of new suppliers makes Moscow eager to lock in a share of the Chinese market as soon as possible, rather than risk losing out to its competitors.

“Russia is keener to get on with this than China is,” Chris Weafer, chief analyst at the Moscow-based Uralsib Bank, admits.

But many experts say the energy deals don’t necessarily signal that the Dragon and the Bear are preparing to forge a major new strategic partnership.

Moscow remains suspicious of China’s growing influence in central Asia, a region it regards as its “sphere of privileged interest,” says the Financial Times.

In turn, China has been frustrated by the closure of a wholesale market near Moscow, affecting 60,000 Chinese merchants trading there. The Chinese were accused of selling smuggled goods.

But the bigger picture is a better one. Trade between the neighbours has grown from $10.7 billion in 2001 to $56.9 billion in 2008.

Still, it looks more likely that it might be a mutual interest in natural gas, rather than a shared appreciation of Das Kapital, that warms Sino-Russian ties in future.

“We cannot be as close as we were in the 1950s,” agrees Han Hua, an associate professor at Peking University’s School of International Studies.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.